Level 2 Analysis

VinceField

Junior member
43 0
How do you use level 2 to inform your trading decisions? What do you look for and what does that tell you about what is likely to happen with price action?

One thing I've seen is that if there is a big buyer sitting and waiting lower than the bid price, this is a bearish sign, as once that buyer is sold off, the price is likely to shoot down.. that support is gone.

Likewise, if there is a big seller sitting and waiting lower than the ask price (asking for a higher price than the ask), this is a bullish sign, as once this seller is bought off, the price is likely to shoot up.. that resistance is gone.
 

Trader333

Moderator
8,613 939
One of the issues with Level 2 is that it cannot see or factor in "market" orders and if most of the trading is done at market then it is of no use at all. It has also been used in the past to spoof and by that I mean that a huge order could be sat at a key level to give others an impression of order intention and then pulled before any trades are made at the level is was at. Also in the past it was possible to have hidden orders that are sat at key levels but are not seen in the level 2 book.
 
 
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